Ride-sharing app Uber, which is undermining established taxi businesses worldwide, is all set to make inroads into Pakistan. PakWheels and Zameen.com have received millions in venture capital funding and are aiming to become billion dollar companies in the next five years.
In fact, entrepreneurship has become the new buzzword in Pakistan and the start-up fad is booming.
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However, for every success story, there are a thousand untold stories of failures. Considering the key role that start-ups and SMEs play in fueling our economic engine, it might be worthwhile to examine various challenges faced by start-ups in introducing new ideas and breakthrough products. For small start-ups, access to capital remains the biggest challenge as only a successful entrepreneur with some organic growth can pitch to an angel investor for seed funds in exchange of sweet equity, and can then raise more capital by negotiating with venture capitalists.
Identifying the market gap
The biggest challenge in a new product introduction (NPI) is to identify an unmet market need, gap or a problem. After a market ‘gap’ is identified, the next step is to do a situational and customer analysis to find attractive customer segments, define target markets and then position the product accordingly.
However, positioning of a totally new product could be quite challenging as there may be no clearly defined product category. For instance when Apple Newton was introduced, the company had a hard time whether to position it as an electronic diary, pocket computer or a personal digital assistant.
Eventually the product failed because it was overpriced, the perceived product quality was poor and there was no customer demand for that product. However, sometimes a prior consumer demand is not necessary and the product itself can create a new customer segment.
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Time to market
The second big challenge in coming up with a viable business model for NPI is the time to market (TTM). TTM is very critical in fast-moving industries like internet based start-ups but it usually involves a trade-off between product quality and IP protection.
Acquiring a patent may take up to three years and by that time, the technology may have no commercial value due to very short product life cycles. Similarly when project manager pushes too hard to hit the market in the shortest time, they often compromise on quality which can result in substantial capital loss as well as deterioration of brand image.
Intellectual property dilemma
IP protection process can either focus on prevention of imitation or compatibility which depends on business model or market segment. Too much emphasis on IP and failure to license it, often results in loss of market share.
Patents do not guarantee market success but can prevent others from illegally profiting from it to a certain extent and for a limited time period. In contrast, registered designs prevent copying of a product’s appearance for example design of IPod interface.
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Recently, Samsung lost a billion dollar case to Apple on allegations of copying some parts of its graphical user interface.
Big firms, very often, due to inertia and a strategic lock-in, fail to adopt emerging technologies till it is too late for instance vacuum tube manufacturers continued to make “better and cheaper tubes” with a focus on sustaining innovation even after the invention of transistor.
Transistor radios had initially poor sound quality but they were portable and consumed less power. They were initially adopted by young population or ‘beach’ boys. As the technology improved, the vacuum tube industry was completely displaced in a few years time and it became a niche market from mainstream.
So the tried and tested methodology for start-ups is: develop a new idea to bridge market gaps, identify new niche markets with no competition, bootstrap, be the quickest to market and learn from consumer response. However, when the market situation is very unclear and NPI has high capital requirements; it is often a better idea to develop an eco-system with collaborating partners, share the IP, get access to resources/capital and roll out slowly but in a low risk manner.
The writer is a Cambridge graduate and is working as a management consultant
Published in The Express Tribune, February 1st, 2016.
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